ADVOCATES FOR TRUTH IN LENDING, INC.

and EDU- AUTHOR: David

ARDO B. OLAGUER vs. BANGKO SENTRAL MONE- NOTES: CONSTI rulings not so impt:
TARY BOARD PC is wrong cos its for tribunals exercising judicial or quasi-
[G.R. No. 192986 January 15, 2013] judicial functions. CB-MB performs executive functions.
TOPIC: USURY NO LOCUS STANDI-DOES NOT ALLEGE MISUSE OF
PONENTE: REYES PUBLIC FUNDS. NOT OF TRANSCENDENTAL IMPTNCE

CASE LAW/ DOCTRINE:

Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity. A Central Bank
Circular cannot repeal a law. Only a law can repeal another law.
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man.

EMERGENCY RECIT:
AFTIL filed a PC to question the validity of CB No. 905 in suspending the USURY Law and the authority of CB-MB to prescribe the
maximum rates of interest for all kinds of transactions. The SC ruled that the power of the CB to effectively suspend the Usury Law has long
been recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, CB Circular No. 905 did not repeal nor in
anyway amend the Usury Law but simply suspended the latter’s effectivity. Further, Section 1-a of CB Circular No. 905 the BSP-MB may prescribe
the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans
of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even au-
thorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries. Lastly, the Court held that even with the suspension of the Usury law, the imposition of an unconscionable rate
of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It is further made unlawful by Art. 1409 of the CC.

FACTS:

- Petitioner AFTIL is a non-profit, non-stock corporation organized to engage in pro bono concerns and activities relating to money
lending issues. It was incorporated on July 9, 2010,2 and a month later, it filed this petition, joined by its founder and president,
Eduardo B. Olaguer, suing as a taxpayer and a citizen.

- R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948, empowered the CB-MB to, among others,
set the maximum interest rates which banks may charge for all types of loans and other credit operations, within limits prescribed by
the Usury Law.

- On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving the CB-MB authority to prescribe
different maximum rates of interest which may be imposed for a loan or renewal thereof or the forbearance of any money, goods or
credits, provided that the changes are effected gradually and announced in advance.

- In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued CB Circular No. 905, Series of 1982, effective on January
1, 1983. Section 1 of the Circular, under its General Provisions, removed the ceilings on interest rates on loans or forbearance of
any money, goods or credits.

- The Circular then went on to amend Books I to IV of the CB’s "Manual of Regulations for Banks and Other Financial Intermediaries"
by removing the applicable ceilings on specific interest rates, ceilings for interest and other charges, commissions, premiums, and
fees applicable to commercial banks, interest ceilings for thrift banks, ceilings applicable to rural banks, and the ceilings for non-bank
financial intermediaries.

- On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas (BSP) to
replace the CB. The repealing clause thereof, Section 135, reads:

Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46 and 132 of this Act, Republic Act No. 265, as amended,
the provisions of any other law, special charters, rule or regulation issued pursuant to said Republic Act No. 265, as amended, or
parts thereof, which may be inconsistent with the provisions of this Act are hereby repealed. Presidential Decree No. 1792 is likewise
repealed

- AFTIL went straight to the SC to file a Petition for Certiorari

ISSUE(S):
- W/N the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all interest ceilings and thus suspended
Act No. 2655 as regards usurious interest rates. NO
- W/N under the CB-MB had the statutory or constitutional authority to prescribe the maximum rates of interest for all kinds of credit
transactions and forbearance of money, goods or credit beyond the limits prescribed in the Usury Law. YES

RATIO:

The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.

- The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld in many cases. As
the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 did not repeal nor in anyway amend the
Usury Law but simply suspended the latter’s effectivity.

- A CB Circular cannot repeal a law, for only a law can repeal another law. That by virtue of CB Circular No. 905, the Usury Law has been rendered
ineffective, and Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.

- In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, we also belied the contention that the CB was engaged in self-legislation. Thus:

Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity. The illegality of
usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law.

- By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of contract to agree freely on the rate of interest. It cited
Article 1306 of the New Civil Code, under which the contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

The BSP-MB has authority to enforce CB Circular No. 905.

- Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended." It does
not purport to suspend the Usury Law only as it applies to banks, but to all lenders.

- Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did not retain this power of its prede-
cessor, in view of Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.

- A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-a of the Usury Law, as
amended, the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money,
goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies
and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries.

The lifting of the ceilings for interest rates does not authorize stipulations charging excessive, unconscionable, and iniquitous interest.

- It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets.

- The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and
as one that may be sustained within the sphere of public or private morals.

- Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not against the
law. Indeed, under Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor
may the right to set up their illegality as a defense be waived.